HC Quashes ITC Blocking Without Hearing or Proper Reason

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  • Last Updated on 6 July, 2025

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Rule 86A ITC blocking

Case Details: S.A. Industries vs. Assistant Commissioner of Central Tax - [2025] 173 taxmann.com 791 (Karnataka)

Judiciary and Counsel Details

  • S.R. Krishna Kumar, J.
  • Sameer Gupta, Adv. for the Petitioner.
  • Jeevan J. Neeralgi, Adv. for the Respondent.

Facts of the Case

The petitioner challenged an order issued under Rule 86A of the CGST Rules, read with Section 16 of the CGST Act, whereby the petitioner’s electronic credit ledger was blocked. It was contended that the order was passed without affording any pre-decisional hearing and without recording independent or cogent reasons to believe that the input tax credit was ineligible. The petitioner submitted that the blocking was effected merely by a text message stating that a certain amount of input tax credit had been blocked and that the impugned order relied entirely on enforcement authority reports without any independent application of mind. The matter was accordingly placed before the High Court of Karnataka.

High Court Held

The High Court of Karnataka held that the impugned order lacked sustainability in law as it was passed without granting the petitioner a pre-decisional hearing and without disclosing any independent or cogent reasons. It was observed that reliance solely on external enforcement reports amounted to borrowed satisfaction, which is impermissible under the statutory scheme. The Court emphasised that any restriction under Rule 86A must be supported by the proper officer’s own satisfaction based on tangible material and not mere reproduction of external findings. Consequently, the impugned order was quashed, and the petitioner’s electronic credit ledger was directed to be unblocked.

List of Cases Reviewed

List of Cases Referred to

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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied